Industry sector:

Tool hire: Cash from debtors


'Cash from debtors' means income you receive from account customers that you send an invoice to, usually at the end of the month. After they have been sent an invoice but before they pay, they are your debtors. When they pay you, the payment is referred to as Cash from debtors.

Decide whether you will offer account facilities, and if so who will be eligible. Your account customers might include trade customers like local building firms, the local authority, and other businesses and organisations that hire equipment from you on a regular basis. You're likely to have a significant number of trade customers and they may well account for the majority of your business.

You may also allow your friends and acquaintances some credit from time to time, but remember that chasing up overdue payments can be time consuming and stressful.

Payment terms

Agree payment terms with your account customers so that there is no confusion as to when invoices should be settled. You might, for example, require all accounts to be settled every month, perhaps by a particular day of the month. Alternatively, you might state on your invoice that payment must be made within, say, 28 days of the invoice date.

If you're a member of the Construction Plant-hire Association (CPA) then you may well decide to use their Model Conditions for hire agreements.

Make an estimate of the amount of income you are likely to receive from account customers each month, including VAT. Enter the amount in your cash flow in the month in which the money is due to be received.

Consider what steps you will take to recover any overdue amounts and whether interest will be charged on these. Don't go on dealing with customers who do not pay their bills. Unfortunately the construction industry has become quite notorious for slow payment of invoices.

Your business stationery

Have some invoices printed for your account customers. A good printer will be able to advise you on layout, style and even content. If you are registered for VAT you must include your VAT registration number on your invoices.

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